University officials projected a $25 million budget deficit for the 2006-2007 fiscal year, but said they expect to close the gap by the end of the year without slashing expenditures.

To address the deficit, the administration will balance the budget by reallocating revenue sources among the various departments, rather than enact across-the-board cuts, Yale Provost Andrew Hamilton said. Hamilton said inflated fuel prices, federal funding cuts, and new University initiatives forced the budget into the red. But critics said they were surprised by the deficit, given Yale’s strong endowment returns in recent years. The deficit has fluctuated over the last few years, with shortfalls of $14.5 million last year and $30 million the year before, a deficit that resulted in more than 70 layoffs.

Hamilton said the University will not resort to firing employees and reducing salaries to eliminate the deficit this year.

“We all feel that further significant cuts at this time would not be in Yale’s best long-term interest,” he said in an e-mail to staff and administrators. “Rather, we will find ways to use revenue coming into the University more effectively.”

Officials blamed part of the deficit on an unanticipated 35 percent increase in utilities costs, which they attributed largely to disrupted supply lines following Hurricane Katrina. The federal government has also cut funding for Yale research this year, and rising managed care costs are taking a toll on the School of Medicine, which accounts for nearly half of the University’s budget.

Such external pressures are joined by the cost of new and ongoing Yale initiatives, such as improving financial aid, staying competitive in faculty hiring, diversifying employees, and making the campus more environmentally friendly, Deputy Provost Charles Long said. The scope of these projects outstrips Yale’s ability to fund them, Long said.

“The challenge is that our resources aren’t growing as fast as our ideas,” he said. “We have enough money to do anything we want to do; we just don’t have enough money to do everything we want to do.”

The administration is planning to avoid major cuts by spreading out its use of endowment funding — a practice that has been growing for several years.

Investment returns from the endowment have provided a strong source of revenue, but much of the money is restricted to certain programs according to the donors’ wishes, Long said. The new budget guidelines have increased the number of programs receiving restricted funds, relieving the burden on the rest of the budget.

Long said the budget will tap into endowment revenue while respecting donors’ wishes.

“We still have lots of room to bring more relief to general appropriations, without diminishing the programs that are already being supported by those restricted funds,” he said.

To further redistribute endowment wealth, the University will also begin formally requiring individual departments to help pay for the long-term maintenance of campus infrastructure.

But some critics of the administration’s approach believe that there are easier remedies for a tight belt — namely, that the University should relax the self-imposed spending rules on its $15 billion endowment.

Bob Proto, president of the Local 35 labor union, said the administration’s deficit projection results from an overly cautious view of Yale’s finances.

“Deficits at Yale have always amused me,” Proto said. “With the amount of yield they get from the endowment, I find it difficult for anyone to understand how a true deficit can be realized.”

But the greatest budgetary pressures largely fall in areas weakly supported by the endowment, which is largely composed of restricted funds, and a large endowment is essential to the University’s extended health, Long said.

“You can’t invade the endowment to meet operating expenses,” he said. “We want to be sure a hundred years from now that the money will pay salary and benefit in support of a professor.”